If you provide employees with an automobile and the employee drives it for personal use, you must report the employee benefit as a standby charge as a form of income for the worker. As the employer, you receive a tax credit for allowing your employee to use the vehicle, but you must report the standby fee, along with the operating expense benefit, as income for the employee.
Rules Regarding Standby Charges
When employees only drive the car for company business and return it to your organization’s motor pool every night, you do not report any standby fee or the operating expense benefit for taxes. Employees who drive the car home at night and use it for personal business are responsible for taxes on both sources of income for their personal income taxes.
Calculating Standby Charges
The amount of the standby fee is based on several variables, so the Canada Revenue Agency provides a standby tax calculator for vehicle benefits. The amount of the standby charge may change based on the year of the vehicle, the province or territory where the driving occurs, how many kilometres the employee drives the car, and how many days the employee uses the vehicle.
Depending on the value of the vehicle and how much the employee drives it, your company car could be more of an employee liability than a benefit. You want to encourage good record keeping from employees who use a car you supply. Therefore, you must know the number of kilometres the employee drives the company car for personal use to calculate the standby fee. If employees reimburse the company for some of the operating expenses of the vehicle, it reduces their tax liability for the income. Reimbursements from an employee for use of the car also reduce the standby charges you include in your employee’s income.
While providing an employee with a company car is often beneficial, it can increase the paperwork you must complete and file as part of the employee’s income. Allowing the employee access to the vehicle for personal use requires accurate record keeping to meet government requirements at tax time. QuickBooks makes tracking expenses, income, and mileage logs easier. Just input kilometres in the employee’s record on the software, or add notes in the payroll portion of the program to make aggregating this information simpler, because all of the information is in one place.
When you have accurate standby charges for vehicles, tax filings are more accurate with the CRA, which could lead to lower tax bills. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.